Independent Appeal: Building an Ethiopian miracle, one fried doughnut at a time

It would be easy to get the wrong impression about Kibnash Tolossa. She sells doughnuts for a living from a corrugated lean-to in front of her home. The floor is mud. The green-painted walls look as if they have not had a lick of paint for a decade. The half-dozen little tables under the canopy are ramshackle affairs, as are the chairs and benches which surround them.

But do not be fooled. Look more closely. The furniture may be old and battered, but it is of good quality. The floor in the cooking area is tiled. Electricity plugs may dangle crazily from the ceiling, but at least that shows the place has power. And the flow of well-dressed customers for her tea and cakes is steady.

Kibnash Tolossa – a fine figure of a woman with, as she puts it, "a goodly bit of flesh on my bones" and a handsome red robe – embodies the changes that are transforming Ethiopia from the destitute place it was 25 years ago, when a million people starved to death, to a nation which The Economist predicts will be among the five fastest-growing economies in the world in 2010.

And she is a testimony to the fact that aid can kickstart such changes. A decade ago, Kibnash was poor but now has 70,000 birr (£3,400) in the bank. Her shop is off a dusty alleyway near the main street in the provincial town of Nazaret.

It is in such unprepossessing places that lives are being transformed. And a meeting of 170 women in a big hall down the road gives a strong clue as to how it is happening.

These are the people Kibnash rubs shoulders with as she works, women who prepare the vegetables, drink and bread which are sold on the streets. They have gathered for the annual meeting of a save-and-borrow club. They scraped together the two birr (less than 10 pence) a week needed to join – and they have prospered as a result.

The formation of these save-and-borrow clubs has been supported by the British development agency ActionAid, one of the three charities to which Independent readers are making donations through this year's Christmas Appeal. They are playing a crucial role in allowing poor people to haul themselves out of hand-to-mouth penury.

Their stories are similar to that of Kibnash, who 10 years ago began making a few extra injera – the local sourdough pancake bread – when she was preparing food for her family. She sold the extra on the streets.

"A local hotel asked me to make theirs," she recalls, "but I was constrained in how many I could make because I could not afford to buy much grain or firewood." So she went to local loan-sharks and borrowed a little from them, even though their rates were exorbitant.

Then the credit union began. "You could get a loan, but you had to save for six months first. I couldn't afford the two birr every week, but I managed, borrowing from friends when I didn't have the money."

Six months on she was allowed to apply for a loan – of 10 times her savings, so long as the union approved her business plan. Local staff from an ActionAid partner, Vision, helped her do that. With the money she bought tef, the local grain, in bulk, at half the price she had paid previously, and began to work full-time. The hotel wanted all she could produce. She took on an assistant.

Kibnash proved an acute businesswoman. After a year, she realised she had outgrown the hotel and switched to providing snacks for a nearby school which had 3,000 students. For four years it brought in an increased profit. But as the profile of pupils at the school changed, and the rent there rose, the business fell away. She decided to switch tack again.

"I had been increasing my savings and my loans as the years went by. But now I borrowed 3,500 birr (£170) to buy a doughnut frying machine and set up this tea-shop," she says proudly, gesturing around the little tea-shop at the front of her home. It is such a success that she has taken on two more staff.

"I am keeping on borrowing because loan-taking is essential to the life of the credit co-operative and the interest rate is the lowest anywhere," she adds.

Because one woman's repayments fund the next set of loans for her friends and neighbours, peer group pressure keeps the default rate extraordinarily low.

Kibnash has just taken 6,000 birr (almost £300) from her account to buy a new fridge freezer. "Come and see it," she says proudly, taking me into her home. Inside she also has two sofas, four armchairs, a coffee table, TV set and CD player, and a large sideboard. "It's full of best crockery – for guests," she says. Such are the hallmarks of a woman of means in middle-class Ethiopia.

The co-operative has now set up a purchasing sub-co-operative through which members buy food - grain, flour, bread and onions. "Everyone in the credit union has moved from a hand-to-mouth existence to being able to feed their family healthily and send their kids to school," says Balay Fanta, from the local council. "It's a model co-operative". Now the union has taken a giant step, buying a downtown shopping mall jointly with other unions.

"We bought the complex with a loan from the banks," says another credit union veteran, Bogalech Wondimu, who chairs the shopping mall venture, "but in 18 months we will have paid for it completely. Then we will be able to offer members access to the units in the mall at a discounted rent. And it will bring in 2.4m birr (£117,000) a year in rents."

Kibnash, for all her business nous, still finds it hard to take on board: "To have gone from selling on the streets to being part-owner of a shopping mall in just 10 years is little short of a miracle," she says. "But a poor woman who begins saving with the credit union today could do the same thing. "

ActionAid likewise is pledged to set up more of these credit unions, so that women like Kibnash are lifted out of poverty and need not ask for charity – ever again